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Editorial: Pension peril

Double-dipping, rising health-care costs add up to unsustainable system

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Public employees who retire to begin collecting their public pension, then are rehired in their
old position and collect a public salary on top of their pension, argue that they're not costing
the taxpayers anything extra, even when these arrangements result in million-dollar payouts.

But, as Ohio's public pensions slide toward insolvency and the state's budget deficit grows more
alarming, the public will be less and less tolerant of this so-called double-dipping.

Defenders of double-dipping argue that if the public employer weren't paying the retiree to do
the job, it would be paying somebody else, also at taxpayers' expense, so there's no real
difference. This argument has merit, though it should be pointed out that if the retiree is rehired
at or above his ending salary, then he probably is being paid much more than a replacement would
have received - meaning that taxpayers are, indeed, spending more than they need to.

But the most important aspect of double-dipping is what makes it possible in the first place:
the generous early retirement ages afforded by public-employee pensions. Some public employees can
retire with full benefits at age 48, while in the private sector, where fewer and fewer employees
have pensions, full benefits often are not available until at least age 65.

Not only do these early retirement ages encourage double-dipping and allow most public retirees
to draw pensions for many more years than their private-sector counterparts, retiring well before
65 means the retirees need health-care coverage until Medicare kicks in. Although state law doesn't
require it, Ohio's public pension plans began offering health-care coverage in the 1970s. Retirees
now demand coverage, and its soaring cost is one of several reasons the pension plans are less and
less financially sound.

An investigation by Ohio's eight largest newspapers into double-dipping, published Sunday,
highlighted some of the most extreme outcomes, involving school-district superintendents. Their
relatively high salaries, combined with the perverse incentives of the State Teachers Retirement
System, lead many to "retire" early, because it can mean a seven-figure paycheck when they finally
stop working.

A superintendent earning $100,000 who retires at age 52 would receive about $64,000 from his
pension the first year. He can be rehired in the same job at his last salary and continue to
receive raises each year.

No wonder a fourth of Ohio superintendents are collecting pensions along with their paychecks.
They're joined by half of the superintendents of educational service centers. Double-dipping
instantly increases their incomes by as much as 80 percent.

Teachers, police officers, firefighters and bureaucrats might not rack up numbers quite as high,
but the same double-dipping incentives apply.

Taxpayers, many of whom face pay cuts or freezes and diminished retirement prospects in their
private-sector jobs, can't be expected to support the current system without change. Managers of
the public pension funds should make the necessary changes, however difficult and unpopular, to
bring them in line with private-sector plans. Change is needed, not only to ensure continued
taxpayer support but to address the growing funding imbalances.

The teachers' system currently has $40 billion in unfunded liabilities and will be looking to
taxpayers for at least a partial bailout.

Already, local governments, including school systems, spend $4.1 billion per year to pay for
pensions. The Ohio Retirement Study Council would like to see "employer contributions" - taxpayer
contributions - raised to the point that they would total $5billion annually.

That's an unrealistic expectation to have of taxpayers.

Instead, pension managers should require employees to pay more into their retirement, raise the
retirement age and, ultimately, shift newly hired public employees to a 401(k)-style retirement
system. Retirees also will have to shoulder more of their health-care burden.